Analysts Forecasts Higher Bond Yields in Second Half of 2021

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By Nume Ekeghe

The Chief Investment Officer, Afrinvest Asset Management, Mr. Robert Omotunde has predicted that the second half of 2021 will see higher yields on federal government’s bonds.

He said this Tuesday, at Afrinvest’s virtual seminar titled: “The investment playbook for 2021,’ where other analysts also from the research and investment company discussed the investment strategies for 2021.

Omotunde said: “The Nigerian domestic bond market is a fantastic opportunity to plug into. If you follow the market, you would have noticed that since December 2020, we are beginning to see uptick in yields.

“And one of the interesting things about it is what you call market expectations and the market sentiments is that yields should begin to trend upwards.

“You have high inflation which peaked at 15.75 per cent and there is no basic justification for it to remain downwards and this has driven sentiments upwards.”

He added: “What we know and what we are certain is that it is a sentiment that cannot last because we are aware of much of the liquidity that are waiting on the side-lines to get invested in asset.

“And as we speak, the alternative that would have been the OMO market, in which case most investors have opted out and so you have the treasury and bond market as the only alternatives left.”

Continuing, the analysts said: “Overall outlook in terms of yield expectations is that we think that demands are going to overweigh the supply and because of that, we expect that this upward trend would reverse at least for the first four to five months into the year and we believe we would now see a bit of uptick towards the end of the year.”

Speaking further on the outlook of the market, he said: “There are so many reasons compelling us to believe that yields would track downwards because of the latest supply we expect form the government and of course the huge demand that is still in the system. We think that is only a matter of time, within weeks, we would begin to see this reality come into play. So, our expectation in the first half is that we would see yields track downwards after which we would then see some uptick in yields in the second half driven by the demand and supply expectation.”

Indications emerged last week that the Central Bank of Nigeria (CBN) could be considering wooing foreign portfolio investors (FPIs) back into the fixed income market with higher yields.

The move was also expected to improve the country’s forex liquidity. Standard Bank revealed this in its latest report obtained at the weekend.

According to the report, should the recent adjustments to over-the-counter (OTC) futures and open market operations (OMO) yields occur, “the CBN seems to be considering attracting FPIs again.”

Last week, the FMDQ OTC futures prices were adjusted higher by an average of N9.81 on the short-end and N14.16 on the long-end of the curve.

According to the report, “such a big move typically connotes an imminent depreciation of the dollar/naira pair.”

While noting that although the NAFEX fix was inching higher gradually, it stated that the expectation was that the move higher may be signaled by the next CBN forex intervention rate at the investors and exporters’ forex market, “which will likely be above the 400 levels.”